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Sony's games business suffered a tough third fiscal quarter as operating income slumped in the face of disappointing hardware and software sales.

For the quarter ended 31 December 2012, Sony's games division posted revenues of ¥268.5 billion ($2.86b/£1.82b), down 15 per cent year-on-year from ¥316.1 billion - or 18 per cent on a constant currency basis. Operating income was in steeper decline, falling from ¥33.8 billion a year ago to just ¥4.6 billion ($49m/£31.3m) in the third quarter - a drop of 86 per cent.

These results were driven by declining returns right across Sony's hardware and software line-up. Sales of the PlayStation 2 and PlayStation 3 - Sony started to combine its console and portable sales last year - were down year-on-year, from 7.4 million to 6.8 million units. The company's full-year forecast remains unchanged from November, though the 16 million unit sales it expects is still 2 million fewer than the previous fiscal year.

The PSP and PlayStation Vita fared slightly better, with unit sales up from 2.4 million to 2.7 million. However, any apparent improvement is mitigated by the fact that the PlayStation Vita was only available in Japan for two weeks in the third fiscal quarter of the prior year.

Sony clearly expected a much stronger showing from its portable hardware, and has lowered its full year expectations from the 10 million expected in its November forecast to 7 million now.

In the presentation materials that accompanied the financial results, Sony highlighted the "slow penetration" of the PlayStation Vita as a major ongoing problem. At present, Sony's strategy is to tackle the Vita's slow progress with a strong software line-up, though a large number of Vita owners are still complaining of an absence of compelling games for the platform.

Certainly, an injection of new games would be welcome, as software sales were down on both console and portable hardware: Packaged game sales on PlayStation 2 and PlayStation 3 fell from 68.7 million units to 61.7 million units year-on-year, while PSP and PlayStation Vita software fell from 11.4 million units to 8.9 million.

Overall, the Sony Corporation showed faint signs of recovery. Total revenues were up 6.9 per cent year-on-year to ¥1.95 trillion ($20.8b/£13.3b) - 3 per cent on a constant currency basis - though Sony attributed the change to the favourable depreciation of the Yen and the consolidation of Sony Ericsson in February last year.

The company made a net loss of ¥10.8 billion ($115.1m/£73.5m), significantly lower than the ¥159 billion loss it posted in the same quarter a year ago. This was helped by a marked improvement in its Mobile Products & Communications division, which, while it still made a loss overall, saw a 94.4 per cent increase in revenue.

Other Sony divisions to make an operating loss were Image Products & Solutions and Home Entertainment & Sound.

Sony is hosting an event in New York City on February 20 that is widely expected to be the reveal for new PlayStation console.

The investor call which followed the release of the results revealed little else of the future of the games division, with Corporate Executive Officer, EVP, and Chief Financial Officer Masaru Kato keeping his cards close to his chest in answering questions on the subject.

Kato deflected questions on any new platforms, but reassured investors that the corporation still sees a long future ahead of the PS3 and reiterated that profit is now made on every PS3 sale.

He was a little more open on the prospects of the Vita, recognising that the handheld hasn't reached its expected potential.

"One thing is clear for us," he told listeners. "In terms of profitabillity we have to do a better job of promoting the Vita." Software was highlighted as the key factor in improving Vita sales, with Kato singling out high-quality third-party software as an essential step towards success.

Generally, however, Kato was cautiously optimistic about the future of the games division, seeming to indicate that home consoles specifically are one of the healthiest parts of the entire company's business. "Although we have reduced forecasts on many product lines, mobile phones and home game devices haven't been revised," Kato pointed out. "That should give you an idea of our confidence in the division."

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9 Comments

That 7 million forecast is down from an original forecast (in May) of 16 million portables. Vita really has performed terribly on a global scale. Not sure this sentence makes a huge amount of sense:

"At present, the strategy is to tackle it [with?] a strong software line-up, though a large number of Vita owners have complained of an absence of games for the platform."

Still, that, and a more sensible policy on memory--either bundling the system with the memory or allowing the use of USB memory, if that's possible--could do wonders for the Vita. The software will likely have to come from Sony themselves, though. Japanese development seems to be lining up behind Nintendo and large Western publishers have never really given much backing to the handheld market. However, software is key. I just wonder if it's going to be too little, too late.

Hopefully the release of Killzone will give the platform a much needed boost. When people see what it is capable of it will trigger a spike in interest. Sony needs to jump on this asap by bringing the Vita in line with the PS4. If it can be used as a smart controller for the PS4 and also stream games in the same way as Project Shield and they announce this on the 20th I think they will gather enough interest to turn the platform around.

Overall though they are making some modest progress back into form. Hopefully they will have learned some humility from the past year and concentrate on doing what they always did best and make great hardware but keep it all linked together in the same eco system. From TV to Console to Phone to Tablet to ...

I remember when that initial 16m figure was announced, and slamming it as totally unrealistic. However, I never would have imagined it could be downsized to as little as 7m!

Sony have a huge problem with the Vita: they have plenty of titles coming out for it in Japan, but each one seems to do little: poor sales, a one week bump, then back to normal. Maybe Phantasy Star can help. Other problem is, the 3DS is going to have a uber-year compared to last year... DQ, Pokemon & MH4 alone.

So... if I total up all those op incomes in that graph (for '12), I get a healthy profit. Where is the loss coming from? They might have a significant interest bill as well.

Unless there is some miracle with the Vita, the games division is going to have a much worse year this year. PSP/PS2 sales will die off completely, and there will be a lot more discounting on both the PS3 & Vita (and possibly lower sales & game sales). All depends on when the PS4 will launch, and with what.

What really struck me the last time I looked at the Sony financials, was how much the FS division was propping up the company... turns out this is effectively "life insurance", which is also building up a huge liability. Surely Japan is not a country where I'd want to be in the life insurance business, given the aging population...

Given that "embarrassingly weak" is a generous phrase to describe PlayStation 3's holiday lineup this past year, I'm not surprised by these numbers. I hope Sony and its new marketing firm for the next PlayStation send out a stronger message soon, because it looks like they've all but abandoned telling people about what's available on the PS3.

want to sell more Vitas? drop the price. Lack of killer software combined with a high entry price make this a no-go for consumers. Drop the price, increase the consumer base, integrate with PS4, become more attractive for studios.

It's a feedback loop – They have poor sales, they're afraid to spend more money on advertising and marketing which in turn decreases sales...

What they need is marketing – Not price drops! The only thing that could use a price drop are !%#@# Damn Vita Memory Cards! You can get a Vita right now for $249 – Thats not a bad entry into a portable handheld device!

but it's not just the price of the Vita - what use is a console on it's own. For a consumer to buy a Vita, game and mem card they are easily looking at £250+ (Amazon bundle with 4GB card and Fifa is £266) which is equiv. $400. Consider the fact that the 3DS is approx. 50% cheaper for a similar deal. Obviously the 3DS is an inferior console but it's been proven time and again in a console lifecycle that price point is a big factor and it all impacts consumer perception. Honestly, you would of thought Sony learned from the PS3 but apparently not. Real shame.

I just want to point out that the Vita hasn't actually sold anywhere near 7 million units. That's the "handheld total" of the Vita plus the PSP. The Vita will have sold fewer than 5 million of that 7 million total projected (a projection they may still miss).

Agreed with the general feeling that the Vita needs a price cut. I got mine for £130 thanks to my better half working at a well know second hand retailer but I honestly think that's what the standard retail price should be. Handhelds bought with storage and a few games shouldn't hit above the £200 mark, never mind more than that for just the base console. I don't regret my purchase but I'm getting concerned with the lack of software on the horizon.